Distressed Property Solution

Saturday, January 30, 2010

Financing Foreclosure Purchases

With the onslaught of foreclosures on the market, many real estate investors have found these properties are great investments. They have also learned that getting financing for them may not be easy as lenders are tightening their practices.

To avoid traditional financing, a few real estate investors count on turning the properties they buy over quickly and will use high limit credit cards to finance their investments. This can be risky and the investor that does this could find themselves in trouble fast. Other investors are becoming partners by putting their monies together. This allows them to act quickly on foreclosed properties and then they split the profit when the property is sold.

Some banks offer a low line of unsecured credit to investors, considered a business loan not a mortgage loan. They are short term repayment versus long term as a mortgage loan. This gives the real estate investor operating capital and is paid off as soon as the property is sold.

Going through hard money lenders is another option. They do not have the strict lending standards as banks. The interest rates are higher with hard money lenders, but they are short-term solutions that experienced investors use to turn a property around quickly. This type of loan is repaid in full when the property is re-sold.

FHA loans are a financing option when purchasing foreclosed properties. This type of financing is not good for those who buy and then turn over the property quickly. For a first time buyer, this is great finance method to get a good price on their purchase. If a foreclosure needs a lot of work the FHA loan can be used to fund the repairs. This can increase the value of the home for resale. A FHA loan is a long-term investment and can be a great start for new investors.

If an investor is planning on a quick turnaround, a discount mortgage is a good option. This type of mortgage has flexible interest rates, meaning that the rate can go up in the future. If the initial rate is a good rate and the investor is comfortable that they can sell the property before the rate goes up, this method is a good option. However if a quick sale is not possible it is wise to refinance with a traditional mortgage with a fixed rate to protect their investment.